The AGS sets out what the Commission
believes must be the EU’s priorities for the coming 12
months in terms of economic and budgetary policies and
reforms to boost growth and employment. Its presentation
marks the opening of the second European Semester of economic
governance.

In terms of fiscal consolidation,
progress is being made – though it is too early to make
an overall assessment and the deteriorating economic picture
will make further advances in this area more challenging.

On labour market reforms, there has
been some progress in the areas of active labour market
policies, skills, life-long learning and education. Reforms
of wage-setting systems remain contentious and there has been
progress in only a few countries.

On growth-enhancing measures,
progress has been slow. Some reforms have been launched in
the areas of research, development and innovation; transport;
and energy. On the other hand, most of the bottlenecks in the
areas of competition, services and network industries remain
unaddressed.

The 2012 AGS notes that progress in
implementing the guidance put forward in the 2011 AGS has
been below expectations and calls for a greater sense of
urgency to accompany the second European Semester.

3. What are the key messages in the
2012 AGS?

The Commission places a strong emphasis on
the need to step up implementation of commitments made by
Member States, with a clear focus on measures that enhance
growth and labour-market participation. The AGS calls for
national and EU efforts to be concentrated on five priorities
for 2012:

·Pursuing differentiated growth-friendly fiscal
consolidation: implementing sound budgetary policies,
tailored according to Member States’ current fiscal
positions; maintaining as far as possible investment in
growth-enhancing areas; and making tax policies more
growth-friendly

·Restoring normal lending to the economy: facilitating
banks’ access to term funding and strengthening their
capital positions; limiting the impact of banking sector
reform on the flow of credit to the real economy; taking
further measures to support SMEs’ access to finance;
and developing a new European venture capital regime

·Promoting growth and competitiveness for today and
tomorrow: building the EU digital economy, completing the
internal market in services and tapping the growth potential
of external trade; making the best use of the EU budget to
underpin growth-boosting investment; and fast-tracking the
pending and future proposals at EU level listed in an Annex
to the AGS

·Tackling unemployment and the social consequences of the
crisis: promoting business creation and self employment;
enhancing labour mobility; strengthening initiatives that
combine work experience and education; reducing labour
taxation and disincentives to job creation; reinforcing
coverage and effectiveness of active labour market policies
and improving social protection systems to protect the most
vulnerable

·Modernising public administration: improving national
business environments by minimising administrative burdens;
ensuring that exchanges between administrations and
businesses/citizens can be done digitally; and implementing
the commitment to cut start-up time for new businesses to
three days

4. What progress has been made on the
Europe 2020 targets?

Europe 2020, the EU's ten-year strategy
for smart, sustainable and inclusive growth, is more relevant
than ever given the current economic climate. Yet progress by
Member States towards the Europe 2020 targets has so far been
disappointing. Moreover, the Commission's assessment is that
at this point in time, national targets set by Member States
are insufficient to meet most of the EU-level targets,
particularly for energy efficiency. The latest statistics
indicate that only in the area of education has some progress
been made:

-Education: The EU's target of not more than 10% early
school leavers will not be reached on the basis of current
commitments, which would bring it down to a level of 10.5%.
In 2010, early school leaving dropped to 14.1% from 14.4% in
2009. But this masks wide variations between Member States.

-Employment: If all Member States achieved their
national targets, the EU as a whole would still be 1-1.3%
points short of the agreed target employment rate of 75%. No
substantial progress has been registered in 2011.

-Research and Development: If national targets were
reached, the EU would still fall about 0.3% short of the 3%
2020 target. R&D investment in 2009 stood at 2.01% of
GDP, with little progress foreseen in 2011.

-Poverty reduction: Based on current national targets,
around 12 million people would be lifted out of poverty and
social exclusion, short of the EU's 2020 target of 20
million.

-20/20/20 climate/energy targets: The EU as a whole is
expected to meet the target of a 20% reduction in greenhouse
gas emissions compared with 1990 levels. Some Member States
though will have to amend their policies in order to reach
their binding national targets. On energy efficiency, work is
ongoing on the analysis of Member States' targets and a
report will be presented in early 2012. The legally binding
renewable energy target of 20% should be met if Member States
fully implement their renewables action plans. At EU level,
the share rose from 10.34% in 2008 to 11.6% in 2009.

5. Does the 2012 AGS
analyse the implementation of the 2011 Country-Specific
Recommendations?

Not in detail. This analysis will be
published alongside the 2012 Country-Specific Recommendations
next June.

6. How does the
Euro+ Pact link to the AGS?

The Euro+ Pact was concluded in March 2011
by the 17 euro area countries with the participation of six
of the remaining ten Member States. The 23 signatories to the
pact agreed to make further commitments, beyond what had been
agreed at EU level, in the areas of competitiveness,
employment, sustainable public finances and financial
stability. Member States’ commitments made in the
context of the Euro+ Pact are integrated into their National
Reform Programmes and Stability or Convergence Programmes and
assessed within the framework of the European Semester.
Progress regarding these commitments is tracked in the 2012
AGS, notably in the concluding table of the annexed
Macro-Economic Report.

7. What specifically
does the AGS say on labour market challenges?

Slow growth is hampering the already weak
employment recovery. Any recent increases in job levels have
been mainly driven by the growth in temporary contracts and
part-time jobs. Youth unemployment has increased dramatically
from 15% to 21% between 2008 and 2011, while the share
of 15-24 year olds neither in education, employment or
training has risen to 16%. Long-term unemployment is also
growing quickly across the Union (40% of those looking for
work are long-term unemployed).

8. What must Member
States do to ensure a job-rich recovery?

The rate of job creation of the EU economy
has not recovered the levels before the crisis. To ensure a
job-rich recovery Member States must give priority to promote
business creation and self-employment, including social
entrepreneurship and to exploit the potential offered by some
specific sectors (low-carbon economy, health and social
sectors and in the digital economy).

Labour market policies can help create the
right environment for job creation by addressing labour
shortages through labour mobility, reducing labour taxation
as well as helping to address excessive rigidities of
permanent contracts and providing easier access to the labour
market and better protection to those left outside.

9. What does the AGS
say about specific challenges like youth unemployment?

The situation of young people is
especially worrying. Between 2008 and 2010, the total number
of young unemployed people in the EU increased by one million
and the EU-wide youth unemployment rate has increased to over
20%, with peaks of more than 40% in some Member States. The
priorities for Member States are to establish strategies
identifying the most urgent needs and proposing concrete
actions that target young people not in employment, education
or training. This includes good quality apprenticeships,
traineeship contracts and entrepreneurial skills, as well as
modernising education and training systems to reflect labour
market skills demand while reinforcing their efficiency and
quality.

10. What does the AGS say about how to
address the social consequences of the crisis?

The crisis has disproportionately hit
those who were already vulnerable and has created new
categories of people at risk of poverty. Member States must
give priority to reinforcing the coverage and effectiveness
of active labour market policies. They also need to take
account of the distributional impacts of fiscal consolidation
to avoid compounding existing social difficulties. This will
mean improving the effectiveness of social protection systems
and avoiding sudden withdrawals of past extensions of
coverage and eligibility.

11. What does the AGS say on
taxation's role in achieving consolidation and growth?

The AGS advises Member
States to take a close look at how the quality of their
revenues can be improved, focussing on a number of important
areas in particular:

-Raising revenues in a smarter
way:Instead of arbitrarily
raising rates, Member States should look at how to improve
their current tax systems to raise revenues - for example,
reconsidering tax breaks, broadening tax bases and phasing
out hidden tax subsidies.

-Tackling tax evasion and
fraud:Many billions of euros
are lost from national budgets every year due to tax evasion
and fraud. Member States need to strengthen their
administrations to combat this problem, and ensure that the
controls and sanctions are strong enough deterrents.
Coordination at EU level is also crucial. It can ensure that
aggressive tax planners can't exploit loopholes between
Member States' systems and that there is a consistent EU
approach to third countries when it comes to tackling
uncooperative jurisdictions.

-Creating a better environment for
business:Member States are
advised to examine whether they could shift taxes away from
areas that impede growth (labour, corporate taxes) towards
more growth-friendly taxes (consumption, environment). Member
States should also agree on proposals that would remove
obstacles for businesses such as the Common Consolidated
Corporate Tax Base and the Energy Tax Directive.

-Coordinating at EU level to maximise
reforms:EU coordination
on taxation prevents distortions and obstacles to the
Internal Market, limits non-taxation and abuse, and prevents
a "race to the bottom" approach which can curtail national
reform efforts. It also allows the exchange of best practices
and strength in numbers when tackling common problems such as
harmful tax competition from third countries.

12. What are the next steps in
the European Semester?

The AGS launches the 2012 European
Semester of economic governance. It is the basis for building
the necessary common understanding about the priorities for
action at both EU and national level in the coming twelve
months. In the coming weeks and months, the different Council
formations will discuss the AGS and report to the March
European Council so that it can adopt appropriate policy
guidance for the Member States. This guidance should be
incorporated into Member States’ National Reform
Programmes (regarding economic reforms) and Stability or
Convergence Programmes (regarding public finances) presented
in April/May. Having analysed these programmes, the
Commission will issue its Country-Specific Recommendations in
time for these to be endorsed by the June 2012 European
Council. The Member States should then incorporate this
policy guidance in their national economic and budgetary
decisions.